Price Regulation and Competition: Indian Perspective

1
Price Regulation and Competition-Indian
Perspective

• Presented By
• B K PANDEY
• Director (Formulation)
• NPPA

2
Criticality of Affordability of Medicines in India

• Distribution of Expenditure on Treatment
• (Non-Institutional) Based on NSS, 2005)

3
Disease Burden In India
Source World Development Report 2006
4
Relevant Observations of the NationalCommission
on Macro Economics Health,August, 2005

• Probability of the poor falling sick is 2.3 times
  more.
• A Rs. 1000 increase in per capita income
  increases life expectancy at Birth by 3 years.
• An Estimated 3.3 of the population is getting
  pushed below poverty line on account of medical
  treatment.

5
Why market cannot decide medicineprices?

• Free Market/Invisible hand not possible
• Because buyers and sellers have different
  bargaining strengths
• Sellers and doctors decide
• Buyers (patients) have little or no choice
• Buyers have to make decision usually under
  distress

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INFO ASYMMETRY

• Choice by Intermediaries
• Knowledge asymmetry
• From which flows information asymmetry

7
Competition does not reduce prices!

• Many Players but prices of Drugs have not come
  down.
• Same drug is sold at different prices by the same
  company under different brands.
• Lack of awareness that price is not necessarily a
  denominator of quality, hence Brand Leader often
  also the Price Leader (Costliest Drug is most
  sold).
• Therefore competition does not automatically
  bring down the prices.
• In fact more players seems to result in a range
  of prices.

8
Pharmaceuticals Price Regulation

• Consumption patterns are not affected by prices -
  a unique example of market failure 
• The doctors and the pharmacists - companies
  influence them 
• Markets are distorted by unfair and unethical
  marketing practices of drug companies
• Telephone rates, Insurance premia, Electricity
  tariff, Bank Interest rates are regulated.
• Are Medicines less important?

9
Pharmaceuticals Price Regulation in India

• Prior to 1962 no price control, price of
  medicines were high, domination of MNC
• First Price regulation in Medicines was
  introduced in 1962.
• In 1970, the Drug Prices Control Order issued
  under the Essential Commodities Act, 1955
• In the same year, Indian Patents Act (IPA) was
  enacted

10
Pharmaceuticals Price Regulation in India (Contd.)

• DPCO was revised in 1979, 1987 and 1995 as per
  pharma policy of the Govt.
• Under the current DPCO 1995, the Retail Price are
  fixed as follows
• (MCCCPMPC) x (1MAPE/100) excise duty
• (MC material cost including cost of bulk
  drugs/excipients CC conversion cost PM
• cost of packing material PC packaging
  charge MAPE Maximum Allowable
  Post-manufacturing Expenses)
• DPCO 1995 - a uniform MAPE of 100 is granted

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The Indian Pharma Pricing Regulator
Enforce DPCO 1995, Detect Violations, Take
Action
Established in 1997, Multi-Disciplinary, DGCI,
CAB, Sr. Eco. Adv. MOF in the Authority
Inputs for Govt. Policy
NPPA
Monitor Prices of Non-Scheduled Packs Correct
Aberrations, as per Govt. Policy
Determine Recover Overcharging
Fix Regulate Price of Schedule APIs its
Formulation
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Regulation for Pricing Availability in India
DPCO, 1995
74 APIs Its Formulations Under Price Control
Formulation Prices as per formula For
indigenous Drugs Cost 100 MAPE For
Imported Drugs Landed Price 50 margin
Cost Based Pricing of APIs
Price Control of Any Pack in Public Interest
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MECHANISM FOR PRICE REVISION AND REVIEW UNDER
DPCO1995

• Companies can file application for revision of
  prices
• In case the companies are not satisfied with
  prices fixed by NPPA, an appellate administrative
  mechanism with the Govt. available under DPCO 1995

14
Market Shares of Drugs under DPCO
15
Growth in Scheduled Drugs Position as of start
12 years of DPCO,1995
In house data based analysis by NPPA (Source
ORG Data)
16
Trend of Prices
In-house study by NPPA of 15
TOP FORMULATIONS of 15 TOP BULK DRUGS which
remained under Price Control in DPCO,1995/ went
out of Price Control in 1995
1994 Prices compared with July,2007
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Pooled Procurement Prices !

• Govt. tender prices fraction of retail prices
• For example Albendazole 1.89 percent of market
  price!
• Amylodipine 6.13 percent of market price!
• See www.tnmsc.com for tender prices of a good,
  transparent govt. procurement agency

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Impact of Price Regulation

• Total No. of Packs in Market 55,984
• of Packs with Price Increase .11
• of Packs with Price Reduction .009
• of Packs remain stable 99.8

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Initiative taken by NPPA (GOVT.)

• Compulsory printing of MRP of Medicines
• Annual Cap of price increase for non scheduled
  category reduced from 20 to 10 from April 2007.
• 60 companies voluntary reduced the price to
  follow the Govt. instruction.
• In 26 cases of non scheduled packs, NPPA fixed
  and notified the prices in public interest.
• Efforts to revive Central Public Sector Companies
  with view to increase availability and keep
  prices stable

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Initiative taken by NPPA (GOVT.)

• Notification on Official Website, Compendium of
  Prices
• Online Facilities for Application and Complaints
• NPPA Centre for Information Facilitation and
  Grievance (CIFG) handling created at large
  numbers of places.
• Civil Society capacity building through NGOs,
  consumers

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Options

• There is no alternative to price regulation
• In India, majority of the people are covered
  neither by public nor private insurance
• Promote Transparency in Pricing
• Price regulation only on Formulations and
  reference price system for APIs
• Regulation of Trade Margins
• Create consumer awareness
• Promote good quality generic drugs
• Tax and fiscal incentives to those who make
  generic generics as per WHO list and essential
  medicines
• Tax and fiscal incentives to those who make drugs
  for diseases of national importance

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THANK YOU